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Wells Fargo: Still Raising the Bar on Banking

NEW YORK ( TheStreet) -- The financial sector had a phenomenal year in 2012 -- so much so that many industry experts have suggested 2013 will be weak by comparison. Too much needs to go right for a repeat performance.

Although Wells Fargo's (WFC - Get Report) recent earnings might have been for the fourth quarter of 2012, evidence suggests that it will be carried into Q1 2013 and beyond. It was a remarkable performance that netted its twelfth consecutive quarter of earnings per share growth -- an accomplishment that spans back to the height of the credit crisis.

Notably, the bank posted a 24% jump in profits while beating both top and bottom line estimates.

Wells Fargo posted earnings per share of 91 cents -- beating estimates by 2 cents. Profits totaled $5.09 billion, up from $4.11 billion year-over-year. Likewise, revenue arrived strong -- climbing 6.5% to $21.95 billion. This was also enough to top analysts' estimates of $21.30 billion.

The better-than-expected performance was helped by strong mortgage-banking income and credit. Wells, which has outperformed rivals in mortgages, has now begun to steal market share in areas such as customer deposits, which grew sequentially by $17 billion to $799.6 billion.

The bank also showed solid growth in the areas of retail brokerage, credit cards as well as commercial banking. However, net interest margin went in the opposite direction -- shedding sequentially by 10 basis points. Then again, this can be viewed as a positive since it means that customer deposits are growing at a faster rate.

Management agreed. In a recent interview with CNBC, Tim Sloan, the banks CFO described the issue this way:
We'll take that problem all day long. We love growing deposits. It grows relationships, it grows customers and it allows us to grow our fee income over time. The company's underlying results were driven by solid loan growth, improved credit quality and continued success in improving efficiency.

This was certainly an impressive showing. Wells Fargo more than made up for a Q3 performance not up to its usual standards. While most banks tend to fall in within the same category and thus appraised on similar standards and metrics, it remains evident that Wells Fargo is striving to be a cut above the rest.

It will be interesting to see how the rest of the sector performs. On Wednesday, it will be JP Morgan's (JPM - Get Report) turn to report on its Q4 followed by Citigroup (C - Get Report) on Thursday.

From an investment perspective, there will always be a premium placed on banks with above-average growth prospects that still meets certain criteria of safety. Wells Fargo continues to benefit from a business that is unburdened from unfavorable risk while consistently demonstrating solid execution and leverage.

The stock is trading at a considerable discount to long-term growth potential. Investors should expect gains of 20% as the stock should reach $40 by its third-quarter report.

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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